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Inflation Benefits, Long Term Care Insurance | Term Insurance Brokers | Haymarket, VA

Inflation Benefit for Long Term Care Insurance | LTC Quotes

The inflation option on a long term care insurance policy is one of the most important parts in deciding how to structure your coverage.  The option you choose will have a big effect on how much your policy’s maximum benefit amounts will grow to in the future.  Even the “small” difference between choosing a 3% or 5% inflation benefit can amount to a difference of hundreds of thousands of dollars.  For most policies, the inflation options will look something like this:

-3% or 5% compound interest
-5% compound up to 2x the original benefit amount
-5% compound for a maximum of 20 years
-3% or 5% simple interest
-Future purchase option

A 5% compound option with on maximum benefit is the most comprehensive coverage you can buy. 
The average annual rate of increase in long term healthcare costs is about 5%, so this benefit would approximately keep pace with future cost of care.

Let’s look at an example of a 3% compound, 5% compound, and 5% simple interest option over the course of 30 years.  We will assume a $6000 monthly starting benefit:

5% compound
Year 1 - $6,000 per month
Year 10 - $9,773 per month
Year 20 - $15,919 per month
Year 30 - $25,931 per month

3% compound
Year 1 - $6,000 per month
Year 10 - $8,063 per month
Year 20 - $10,836 per month
Year 30 - $14,563 per month

5% simple
Year 1 - $6,000 per month
Year 10 - $9,000 per month
Year 20 - $12,000 per month
Year 30 - $15,000 per month

As you can see, the 5% compound option has significantly higher benefits in the later years of the policy.  

**NOTE – When comparing policies, make sure you understand whether the inflation benefit requires a corresponding increase in premium every year.  Most policies do not, but there are some that do and you always want to compare “apples to apples” when reviewing your options.


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